Question

The money multiplier: question 20 options:
a.is equal to the reserve requirement.
b.demonstrates that small changes in reserves have a negligible impact on the total money supply.
c.measures the maximum amount the money supply can increase when new deposits enter the banking system.
d.works only for increases in the money supply and never for decreases.

Answer 1

The correct answer is c

c.measures the maximum amount the money supply can increase when new deposits enter the banking system


. The money multiplier is the amount of money that banks generate with each dollar of reserves. Reserves is the amount of deposits that the Federal Reserve requires banks to hold and not lend. Banking reserves is the ratio of reserves to the total amount of deposits